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130

Opinion of the Court.

purport to release Reinfeld, Browne Vintners Company and others from all claims the signers had against them.

Under the jury's verdict, we accept the fact to be that petitioner had no basis for his claim to this $250,000 and that he obtained it by extortion. Accordingly, if proceeds of extortion constitute income taxable to the extortioner, his omission of it from his tax return was unlawful. The further factual issue whether, under all the surrounding circumstances, petitioner's omission of the $250,000 from his tax return amounted to a willful attempt to evade and defeat the tax is not open to review here. That issue is settled by the verdict of the jury supported by substantial evidence. It remains for us to determine the legal issue of whether money obtained by extortion is taxable to the extortioner under § 22 (a).

6 That issue was presented to the jury in conformity with the views of this Court expressed in Spies v. United States, 317 U. S. 492, 499. The charge included the following:

“If that money was extorted and was paid as a result of threats, then it was taxable income and Rutkin was under the duty of reporting that tax. But as I indicated to you before, the mere failure to report it doesn't satisfy the requirements of the law with regard to the violation of this statute, there must be something else which will indicate the willful intent to defeat and evade the tax. You may consider other elements that appear in the evidence, the fact that this money was paid over in cash; that no record of any kind was made of the receipt of that money; that the money was split and $100,000 of it sent to the sister-in-law of the defendant to be placed in her vault or 'wault' as it has been called here, and that the other $150,000 was placed in the defendant's own vault. You may consider these as factors surrounding the whole transaction.

“Rutkin says that he kept no books; kept no books at that time nor at any other time; kept no books when he received his profit, sixty, seventy, eighty thousand dollars a year, I think it was, from the bootlegging, and admits that he paid no tax; kept no books when he got this $250,000. These are all things that you may consider as circumstances surrounding the whole procedure. The payment of $250,000 was made in the presence of other people, these people being Zwillman, as I recall it, and Stacher who were there with Rutkin

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Under the instructions to the jury, extortion here meant that the $250,000 was paid to petitioner in response to his false claim thereto, his harassing demands therefor and his repeated threats to kill Reinfeld and Reinfeld's family unless the payment were made. Petitioner was unable to induce Reinfeld to believe petitioner's false and fraudulent claims to the money to be true. He induced Reinfeld to consent to pay the money by creating a fear in Reinfeld that harm otherwise would come to him and to his family. Reinfeld thereupon delivered his own money to petitioner. Petitioner's control over the cash so received was such that, in the absence of Reinfeld's unlikely repudiation of the transaction and demand for

and the lawyers. Well, neither the lawyers nor any of these people, it seems to me, would be inclined to go out and publish it.”

There is no suggestion that petitioner relied, at any time, upon any defense for his omission of the $250,000 from his tax return other than his false claim that it represented his beneficial interest in Browne Vintners stock and that the stockholding nominees had paid a capital gains tax on that interest when it was sold in 1940. When this claim was proved to have been false, and necessarily known by petitioner to have been false, that proof not only destroyed petitioner's claim to the money itself, but it also demonstrated the willfulness of his attempt to evade or defeat paying any tax on the $250,000.

In the New Jersey statute, in effect in 1943, extortion was defined as follows:

“Any person who, with intent to extort from any person any money or other thing of value . . . shall directly or indirectly threaten to kill or to do any bodily injury to any man, woman or child unless a sum of money be paid, shall be guilty of a high misdemeanor and punished by imprisonment at hard labor for a term not exceeding thirty years, or by a fine not exceeding five thousand dollars, or both." N. J. S. A. 2:127-4.

See also, the federal statute, now in effect, relating to extortion affecting interstate commerce: "The term 'extortion' means the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.” 60 Stat. 420, 18 U. S. C. § 420e-1 (c).

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Opinion of the Court.

the money's return, petitioner could enjoy its use as fully as though his title to it were unassailable.

An unlawful gain, as well as a lawful one, constitutes taxable income when its recipient has such control over it that, as a practical matter, he derives readily realizable economic value from it. Burnet v. Wells, 289 U. S. 670, 678; Corliss v. Bowers, 281 U. S. 376, 378. That occurs when cash, as here, is delivered by its owner to the taxpayer in a manner which allows the recipient freedom to dispose of it at will, even though it may have been obtained by fraud and his freedom to use it may be assailable by someone with a better title to it.

Such gains are taxable in the yearly period during which they are realized. This statutory policy is invoked in the interest of orderly administration. “[C]ollection of the revenue cannot be delayed, nor should the Treasury be compelled to decide when a possessor's claims are without legal warrant.” National City Bank v. Helvering, 98 F. 2d 93, 96. There is no adequate reason why assailable unlawful gains should be treated differently in this respect from assailable lawful gains. Certainly there is no reason for treating them more leniently. United States v. Sullivan, 274 U. S. 259, 263.

. There has been a widespread and settled administrative and judicial recognition of the taxability of unlawful gains of many kinds under $ 22 (a). The application of

8 Johnson v. United States, 318 U. S. 189 (money paid to a political leader as protection against police interference with gambling); United States v. Sullivan, 274 U. S. 259 (illicit traffic in liquor); Humphreys v. Commissioner, 125 F. 2d 340 (protection payments to racketeer and ransom paid to kidnapper); Chadick v. United States, 77 F. 2d 961 (graft); United States v. Commerford, 64 F. 2d 28 (bribes); Patterson v. Anderson, 20 F. Supp. 799 (unlawful insurance policies); Petit v. Commissioner, 10 T. C. 1253 (black market gains); Droge v. Commissioner, 35 B. T. A. 829 (lotteries); Rickard v. Commissioner, 15 B. T. A. 316 (illegal prize fight pictures); McKenna v. Commissioner, 1 B.T. A. 326 (race track bookmaking).

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this section to unlawful gains is obvious from its legislative history. Section II B of the Income Tax Act of 1913 provided that “the net income of a taxable person shall include gains, profits, and income ... from . . . the transaction of any lawful business carried on for gain or profit, or gains or profits and income derived from any source whatever

(Emphasis supplied.) 38 Stat. 167. In 1916 this was amended by omitting the one word "lawful" with the obvious intent thereafter to tax unlawful as well as lawful gains, profits or income derived from any source whatever.9

There is little doubt now that where unlawful gains are secured by the fraud of the taxpayer they are taxable.10 In the instant case it is not questioned that the $250,000 would have been taxable to petitioner if he had obtained it by fraudulently inducing Reinfeld to believe petitioner's false claims to be true. That being so, it would be an extraordinary result to hold here that petitioner is to be tax free because his fraud was so transparent that it did not mislead his victim and his victim paid him the money because of fear instead of fraud.

We do not reach in this case the factual situation involved in Commissioner v. Wilcox, 327 U. S. 404. We limit that case to its facts. There embezzled funds were held not to constitute taxable income to the embezzler under $ 22 (a). The issue here is whether money extorted from a victim with his consent induced solely by harassing demands and threats of violence is included in the definition of gross income under § 22 (a). We think the power of Congress to tax these receipts as income

9 For further discussion see dissent in Commissioner v. Wilcox, 327 U.S. 404, 410-411.

10 For example, see Akers v. Scofield, 167 F. 2d 718. There the taxpayer swindled a wealthy widow out of substantial funds with which he was to conduct fraudulently represented treasure hunts. He was required to pay taxes on those funds.

130

BLACK, J., dissenting.

under the Sixteenth Amendment is unquestionable. The broad language of $ 22 (a) supports the declarations of this Court that Congress in enacting that section exercised its full power to tax income. We therefore conclude that § 22(a) reaches these receipts.

We have considered the other contentions of petitioner but find them without merit sufficient to justify a reversal or remand of the case. The judgment of the Court of Appeals accordingly is

Affirmed.

MR. JUSTICE BLACK, with whom MR. JUSTICE REED, MR. JUSTICE FRANKFURTER, and MR. JUSTICE DOUGLAS concur, dissenting

In Commissioner v. Wilcox, 327 U. S. 404, decided February, 1946, we held that embezzled money did not constitute taxable income to the embezzler under § 22 (a) of the Internal Revenue Code. We there pointed out that the embezzler had no bona fide legal or equitable claim to the money, was under a definite legal obligation to return it to its rightful owner, and consequently had no more received the kind of "gain” or “income” which Congress has taxed than if he had merely borrowed money. One who extorts money not owed him stands in this precise situation. He has neither legal nor equitable claim to the extorted money and is under a continuing

11 Helvering v. Bruun, 309 U. S. 461, 468; Helvering v. Clifford, 309 U. S. 331, 334; Helvering v. Midland Ins. Co., 300 U. S. 216, 223; United States v. Safety Car Heating Co., 297 U. S. 88, 93; Douglas v. Willcuts, 296 U. S. 1, 9; Helvering v. Stockholms Enskilda Bank, 293 U. S. 84, 89; Bowers v. Kerbaugh-Empire Co., 271 U. S. 170, 174; Irwin v. Gavit, 268 U. S. 161, 166; Eisner v. Macomber, 252 U. S. 189, 203. The scope of $ 22 (a) in some instances is limited by specific provisions, e.g., § 22 (b) (9) (income from discharge of indebtedness), § 22 (b) (13) (compensation of members of armed forces), but no such provisions apply here.

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